The telecom landscape in Southeast Asia is evolving rapidly, mainly due to increased adoption of mobile devices and growing popularity of digital services. 5G is being rolled out at a rapid pace in the region, and the total number of users in ASEAN is expected to exceed 200 million by 2025, according to the industry trade body GSMA.
Southeast Asia’s digital economy is meanwhile projected to reach $330 billion by 2025, providing ample opportunities for profitable investments. Telcos in Singapore, Malaysia, Thailand, and Indonesia, who already made significant efforts in building out their 5G networks, might still fall short if they don’t adapt.
At the end of 2022, Singapore became the first country in the world to offer nationwide 5G coverage, while Thailand—one of the first ASEAN countries to issue 5G spectrum licences—had 85% of the country’s population covered.
How ASEAN boosted connectivity
The Covid-19 pandemic accelerated ASEAN’s mobile growth as many businesses in the region have been forced to transition towards the digital economy. Businesses and consumers across Southeast Asia embraced e-commerce and fintech solutions, such as digital payments and other online services. ASEAN’s strong economic fundamentals have been propping up this growth, with its 670 million-strong market, its young, tech-savvy population and rising internet penetration.
Governments in the region are recognising how strong digital infrastructure development is lifting economic growth and competitiveness. They have launched many initiatives to attract investments, streamline regulations, and promote public-private partnerships.
In 2021, Malaysia rolled out its Digital Economy Blueprint or MyDIGITAL with the objective to become a digitally-driven, high-income nation and a regional leader in the digital economy. It focuses on 6 strategic pillars: digital transformation in the public sector, economic competitiveness through digitalisation, building out its digital infrastructure, as well as forming agile and competent digital talent, an inclusive digital society in a trusted, secure, and ethical digital environment. The JENDELA 2021–2025 action plan, valued at USD 4.7 billion, was formulated to steer Malaysia towards achieving better digital connectivity, by boosting the efficiency of national infrastructure and aiming to deliver gigabit speed to 9 million households by 2025.
In Thailand, the Ministry of Digital Economy and Society launched the Digital Economy and Society Development Plan, aimed at maximising the use of digital technologies in all socio-economic activities to “create wealth, stability, and sustainability.” The development of fibre infrastructure was a key focus of this plan, lifting penetration to 75% of households by 2027.
Citizens should enjoy improved digital literacy, more high-paying jobs, and overall better social wellbeing. Businesses, both small and large, will have greater opportunities to build and expand locally, regionally, and globally thanks to new digital revenue streams.
Capitalising on the next stage of growth
But despite the digital transformation sweeping across ASEAN, telecom revenues and enterprise IT spending are flattening. The current climate of high interest rates and weakening currencies requires a hyper efficient paradigm. To build the digital backbone profitably, firms need new asset ownership structures, better technology, and new business models. We believe that, in order to achieve this, telcos in the region will need about USD 40-60 billion of additional capital over the coming 5 years.
In the present environment, telcos may find it difficult to fund the infrastructure on their own. Operators will need to redesign their asset ownership and business models. They have to strengthen mobile internet infrastructure to cater to the growing number of smartphone users in Southeast Asia. This involves expanding network coverage, upgrading existing infrastructure for faster speeds, and adopting 5G technology.
Another group that needs to consider the next 5 years as the “last big build” opportunity are the independent tower and datacenter owners and operators. Data centre colocation—the practice of renting space for servers and other computing hardware—is riding a wave of growth and is set to surge by 70% between 2022 and 2027. Until then, a total of 20 new data centres are expected to be opened in the region.
Countries like Malaysia and Vietnam with ample land resources that can provide cost competitiveness have become attractive data centre investment destinations. In fact, Malaysia’s data centre market is expected to reach over USD 2 billion by 2028, according to research firm Arizton. Investments by providers such as Alibaba Cloud, Google and Meta will contribute to the growth of the Malaysian wholesale colocation market. Countries like Vietnam can benefit from lower development costs, as well as cheap and reliable power resources.
Opportunities for investors
Decision makers at investment firms should react to the shifts in both the telco and independent data centre market with more flexible and nuanced investment approaches. Gone are the days of throwing money at the large incumbents in the race to scale. Location, the reliability of the infrastructure, energy, and climate conditions, as well as the regulatory environment all come into play today.
Southeast Asia’s growing digital landscape presents significant opportunities for telecom and tower companies and independent data centre operators if firms are willing to revise business models and ownership structures. Investors, meanwhile, must adopt a comprehensive approach that leverages market insights, regulatory analysis, and industry expertise. By carefully assessing the market potential, investors can identify the most promising opportunities and bet on the right ones.
Today more than ever, it is essential to recognise the potential impact of disruptive technologies and business models in the telecom sector and plan accordingly to stay ahead of the curve.
By Abhishek Srivastava, Principal, Arthur D. Little Southeast Asia
